This paper examines the impact of neighborhood effects using a unique data
set from rural Morocco and finds strong evidence that poor households do shift
their actions, specifically in the domains of social group membership and investment
in education in the next generation, due to living near wealthier households.
The estimation of peer effects focuses on comparing the outcomes of two
groups shown to be similar across covariates that vary in the distance between
their house and that of a third group, specifically those living in the homes of the
former European colonists of the town. This identification strategy is rooted in
the history of Khouribga, as the segregation of the European and Moroccan residents
of Khouribga during the colonial period on separate sides of the railroad
track running through town has resulted in the concentration of Khouribga’s
wealthiest residents today inside the area where the European colonists used to
live. The results suggest that the neighborhood effects contribute to increased
participation by adults in work-related professional groups and higher levels of
investment in human capital in the next generation of sons. Further support
for the presence of neighborhood effects derives from evidence that households
where the father participates in a professional group invest even more in the
education of their sons, and residents of the former European households are
also much more likely to belong to a professional group, facilitating a higher
level of interaction between the two groups. Robustness checks focus on two
distinct areas. First, alternative hypotheses that may explain this result, such
as access to local public goods and other explanations for the limited educational
investment by the North are shown to lack support in the data. Second,
propensity score matching and utilizing distance to nearest European household
as the treatment variable (and dropping observations extremely close to the European
households) mitigate concerns about selection bias into the households
near the European households driving the results. JEL (I25, N37, R23, 015)